Penny auctions: How good a deal?

Penny auction websites advertise big bargains with the lucky winners walking off with things like televisions, electronics, and small kitchen appliances. Prices can start as low as zero and each bid increases the price only a penny or two, so the deals look amazing. But you have to PAY to bid, and that can cost you BIG time - whether you win or lose the auction.

Ads for the penny auction site QuiBids and Happy Bid Day make it look easy to get expensive items for just a few dollars.

One for QuiBids says, "Imagine getting a new Apple iPad today for just $23.74." While an ad for Happy Bid Day states, "Imagine paying $8.72 for a laptop computer."

Consumer Reports Anthony Giorgianni checked out these and other penny auction sites. He took on QuiBids to see what it takes to win a $600 Samsung tablet. At first he was the highest bidder. But as the auction clock approaches zero, he's getting a lot of competition.

At one point Giorgianni said, "We have a big bidding war here."

He explains, "The sites can make a lot of money when there's a bidding war because they charge you every time you bid. A typical bid costs 50-cents to a dollar and the site keeps your money whether you win or lose."

So if the winning price is $100 and each bid costs 50-cents, the site could bring in as much as $5,000.

Amanda Lee founded a website called Penny Auction Watch after she had some bad experiences bidding and says you can get caught up in the game and lose your head.

"I once spent $200 in bids to win a $50 gift card and I didn't even win it," said Lee.

The Federal Trade Commission has issued a consumer alert about penny auctions, also advising you to beware that some sites charge a substantial registration fee. And in order to bid, most sites require you to first buy a bid package, which costs $40 or more. Any additional bids are extra.

Giorgianni says, "One way penny auction sites typically suck you in is by adding seconds to the clock after every bid."

So with auctions for popular items like electronics, bidders keep jumping back in hoping to win.

Amanda Lee tells us, "I've won a few good deals on penny auction sites, but there's other times where I've lost a lot."

Even if you do win, beware that you may have to pay a transaction fee and shipping and handling. Find out what those fees are in advance. Also ask what the return policy is. And watch out - Amanda says she once lost more than $300 when a now-defunct site didn't send her the items she had won.

Both the FTC and the Better Business Bureau say that's just one of many common complaints about penny auctions. In fact, several penny auctions have been forced to shut down and reimburse customers after various alleged bad business practices.

"Our advice: Buyer beware. Though you might get a good deal, you might also lose a lot of money," says Giorgianni.

QuiBids and Happy Bid Day tell me there are some bad apples in the penny auction industry but they emphasize they themselves do NOT use any unlawful or unscrupulous business practices.

QuiBids says it is developing new commercials, a disclaimer about results not being typical will be addressed, and that new commercials should come out in time for the holidays.

One more thing - with many penny auction sites, if you don't win, you can apply some or all the money you've spent bidding toward buying the item at the site's full price. But Consumer Reports warns those prices are often HIGHER than prices offered by regular retailers.

QuiBids' Chief Financial Officer Jeff Geurts sent us his response to several questions:

Regarding the FTC alert that came out regarding penny auctions:"We're very thankful to the ftc for putting something like that out because there have been some bad apples. But none of the things that the FTC is warning consumer about applies to Quibids.

Regarding the allegation that sometimes you're bidding against a computer system:We had a third party audit of our internal controls by Grant Thornton. That was to show that we don't do those kinds of things."

Regarding the FTC allegation that some sites don't ship products:"There have been sites that have tried their hand at the penny action industry and failed. And they're primarily the ones that failed and stopped shipping product. Quibuids is nowhere near failing.. Qubids is by far the largest penny auction with 85-percent of the market share. You can tell by looking at our website.. nearly 10,000 auctions a day in four countries.. just launched in the uk a couple days ago. Our closest competitors might have 300 or 400 auctions in a day and we have more variety .. more different types of items being offered in a day."

"There is no fee to register for Quibids. On our site, the only fee is to purchase bids.. Initial bid package is 100 bids for $60 .. and if you don't use any bids, they're fully refundable so you can get the $60 back.. or if you just use one bid, you'll get back $59.40 since bids are 60-cents each."

"Typically a delivery fee does exist. On some auctions - there'a s transaction fee of $1 or so.. Merchant accounts wouldn't allow transactions for under a dollar.. so when we have auctions ending for a penny - we couldn't have that transaction."

Regarding product shipping times:"A week or less.. a lot of them in 3 days."

"On Quibids - there are free bid opportunities.. and voucher bids. We give you seven free bids on your birthday. On our intitial landing or first purchase page - you get 3 free bonus bids if you subscribe to our newsletter."

"Quibids clock resets anywhere from 10 to 20 seconds."

Regarding bot bidders, shill bidders, and employees bidding: "We do not allow any of those three."

"Quibids' Bid-omatic we do have.. you can set the bid-omatic to bid up to 25 times in a row for you.."

"Buy now feature.. bids go toward price of item."

"We do our best to have good, competitive pricing. Amazon still typically beats us but we're working on that and our goal is to catch them at some point."

"And one thing that wasn't mentioned in the Consumer Reports article that's very important - we're not just selling the products on quibids - we're also seling the experience.. The people who love !uibids really love Quibids and they love shopping on Quibids because it's a lot of fun so we're selling fun.. entertainment shopping..entertainment retail shopping.. It's entertaining to bid on the items but you're protected because you can always buy the item at the price it's stated at."

"It's clearly not gambling. Quibids 101 section talks more about it. It's skill-based.. With our Buy Now feature - it takes away that aspect of gambling because you can always get the product and you're in complete control. The customers are bidding against each other.. Quibids isn't determining odds.. there are no odds."

"New commercials should come out in time fo the holidays."

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Q and A with Lisa DeMaria,CEO of HappyBidDay.com

The BBB has received hundreds of complaints from consumers about penny auctions.. Any comment?Unfortunately many penny auction sites have engaged in unlawful business practices, such as failing to deliver the products to customers. These practices escalated many complaints and created a misleading impression about penny auctions in general. We condemn such practices and welcome when sites like that shut down.

Does HappyBidDay have a required sign-up or registration fee? If so, how much is the fee? Does it claim to offer a free trial? Registration is free. All new customers who register receive 50 free bids to participate in our happy auctions. This provides a free orientation at no cost period so consumers can engage on our site and experience how it works.

The FTC says penny auctions are more like lotteries.. Any comment?On August 25, 2011 the FTC cautioned and encouraged consumers to learn how penny auctions work. The FTC is informing consumers of the pitfalls so that they can become more educated consumers. There has been no finding by the FTC or any other governmental authority that penny auctions are lotteries or any other form of gambling.

How much is the required initial bid package?Consumers do not have to purchases bids in order to participate in our happy auctions. They receive free bids when they register and each day they log in. If they would like to participate in our 1 cent auctions, bid packs start at $40.

How soon do customers receive the item they're bidding on?We ship within 3-5 days

Do you use the term "bonus bid?" Does that suggest a free bid? Does HappyBidDay offer any free bids?We offer free bids on registration and all customers are enrolled in our rewards program where they earn free bids to participate in our happy auctions.

Does an auction winner have to pay shipping/handling? Transaction fee? How much are these fees? Consumers pay the final auction price and shipping/handling. Consumers can review all shipping/handling fee's on the product page prior to participating in an auction.

What is the return policy? We refund unused bids that were purchased within 30 days of purchase date. Regarding merchandise consumers can return a product for any reason withing 14 days of delivery.

How much time is added whenever someone bids? Like most auctions between 10 and 30 seconds.

-Does HappyBid Day use bots, shells, or employees to bid? Does it offer an automatic bidding feature? How does it work? Absolutely not! We do not use shills or bots and our employees are not allowed to bid on auctions. Consumers can use our automatic bidding system which bids on thier behalf.

Does your site limit how many times a participant can win within a given period?Yes we limit our penny auctions to 2 wins per day, 6 per week.

Do your commercials mention the potential for risk or the indicate that the amazing savings advertised are not typical? Does HappyBidDay have any plans to modify its advertising?Our goal is to have satisfied customers who enjoy the experience available on our site. An important aspect of our shopping experience is having consumers who are educated about how the auction process works. No matter how they come to our site, our customers can learn about the process by visiting our "How It Works" and "Help" section. While we do not have any plans at the moment to modify our advertising, it is our policy to continually review our advertising and web content to provide a happy shopping experience.

Are penny auctions a form of gambling? For a number of reasons, no. We are an on-line auction site. As with any auction, the bidding continues until all but one of the participants is left as the successful bidder. The clock resets and adds seconds to the timer to give consumers ample time to bid. The fact that the participants pay a nominal fee for each bid does not transform the process from an auction to gambling.

Consumer Reports says the buy-now prices on penny auction sites are typically higher than those on Amazon and other retailers. Any comment? The suggested retail price varies depending on vendor, supply and time of year.